Asia shares creep cau­tiously higher Asia re­signed to Fed hike, up­tight on rate out­look

Kuwait Times - - BUSINESS - SYD­NEY: A rich spread

Asia shares crept cau­tiously higher yes­ter­day while a hush set­tled on the US dol­lar as in­vestors felt cer­tain the Fed­eral Re­serve would raise rates for the first time in a year, but were less sure what it might her­ald for 2017. Euro­pean bourses were tipped to open a shade lower by spread bet­ters, while E-mini fu­tures for the S&P 500 were down a minis­cule 0.02 per­cent. Aus­tralia led the go­ing early with a gain of 0.8 per­cent, though MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan could only man­age a 0.1 per­cent rise.

Ja­pan’s Nikkei and Shang­hai stocks both dithered ei­ther side of flat, as did much of the re­gion. The out­come of the Fed’s pol­icy meet­ing will be an­nounced at 1900 GMT, fol­lowed by Chair Janet Yellen’s news con­fer­ence half an hour later. A quar­ter point move is fully priced in, as are two more hikes next year. Any hint that the Fed may move more ag­gres­sively than that would likely send the dol­lar higher and jolt emerg­ing mar­kets. All eyes are thus on the Fed’s eco­nomic and rate “dot” plots for a sense of how pol­i­cy­mak­ers think Pres­i­dent-elect Don­ald Trump’s poli­cies will im­pact growth and inflation.

“As most FOMC par­tic­i­pants are likely to wait for more specifics on Trump’s fis­cal pol­icy ini­tia­tives be­fore for­mally al­ter­ing their fore­casts, mar­kets may be dis­ap­pointed by the lack of ad­di­tional insight pro­vided,” said Michelle Gi­rard, chief US econ­o­mist at RBSM. “We ex­pect most par­tic­i­pants will con­tinue to see two to three rate hikes as ap­pro­pri­ate in 2017.” Trea­suries have al­ready priced in a rate hike and more, with twoyear yields reach­ing ground last trod in April 2010 at 1.18 per­cent. In con­trast, the Euro­pean Cen­tral Bank only last week ex­tended its as­set buy­ing cam­paign and moved to pur­chase more short-term debt.

As a re­sult, the spread be­tween US and Ger­man two-year yields is now the widest since late 2005, with Trea­suries of­fer­ing a mouth-wa­ter­ing pre­mium of 191 ba­sis points. The gap kept the euro on the de­fen­sive at $1.0635, not far from the re­cent 20-month trough at $1.0505. The dol­lar was like­wise steady on the yen at 115.24 and against a bas­ket of cur­ren­cies at 101.000. Spec­u­la­tion that a Trump Ad­min­is­tra­tion will im­ple­ment more debt-fi­nanced fis­cal stim­u­lus and cut reg­u­la­tion helped all three ma­jor US stock in­dexes to records this week. The Dow ended fewer than 100 points from the mag­i­cal 20,000 mark. Bank of Amer­ica Mer­rill Lynch’s lat­est sur­vey of in­vestors found ex­pec­ta­tions of global growth at 19-month highs and inflation at the sec­ond high­est per­cent­age in 12 years.

Fund man­agers were the most optimistic about cor­po­rate prof­its in more than six years and al­lo­ca­tions to bank stocks surged to an all-time peak. The Dow ended Tues­day up 0.58 per­cent, while the S&P 500 gained 0.65 per­cent and the Nas­daq 0.95 per­cent. Tech stocks joined the party as Ap­ple climbed 1.7 per­cent and Amazon 1.9 per­cent. How­ever, con­fi­dence in Asia to­ward business con­di­tions over the com­ing six months dropped in the fi­nal quar­ter of 2016 to its low­est level in a year as firms fret­ted about slug­gish de­mand in a per­sis­tently low-growth eco­nomic en­vi­ron­ment, a Thom­son Reuters/INSEAD sur­vey found.

Asian com­pa­nies are par­tic­u­larly re­liant on de­mand from China, which is firmly in Trump’s pro­tec­tion­ist sights. Bulk com­modi­ties from iron ore to coal have also ben­e­fited from the re­fla­tion trade, com­bined with signs of stronger growth in China. Again, any hint the Fed might step up the pace of tight­en­ing could undo some of those gains. Oil ran into profit-tak­ing fol­low­ing a re­ported rise in US crude in­ven­to­ries and an es­ti­mate that OPEC may have pro­duced more crude in Novem­ber than pre­vi­ously thought. US crude fu­tures, which hit a high of $53.41 on Tues­day, were down 70 cents at $52.28 a bar­rel. Brent crude eased 68 cents to $55.04. — Reuters

YAN­GON: Ven­dors sell flow­ers on the side­walk in cen­tral Yan­gon yes­ter­day. — AFP

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